00 CS FOR HOUSE BILL NO. 207(RES) 01 "An Act relating to adjustments to royalty reserved to the state to encourage 02 otherwise uneconomic production of oil and gas; and providing for an effective 03 date." 04 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 05 * Section 1. LEGISLATIVE INTENT. In amending AS 38.05.180(j) in sec. 2 of this Act, 06 it is the intent of the legislature that the commissioner of natural resources consider reduction 07 of royalty where appropriate, to promote otherwise uneconomic production of oil and gas from 08 marginal fields and pools upon a finding that the royalty reduction is in the best interests of 09 the state. 10 * Sec. 2. AS 38.05.180(j) is amended to read: 11  (j)  The [TO PROLONG THE ECONOMIC LIFE OF AN OIL AND GAS 12 FIELD OR TO REESTABLISH COMMERCIAL PRODUCTION OF SHUT-IN OIL 13 OR GAS THAT WOULD NOT OTHERWISE BE ECONOMICALLY FEASIBLE, 14 THE] commissioner 01  (1) may [SHALL ADOPT REGULATIONS TO] allow reduction of 02 royalty on individual leases or leases unitized as described in (p) of this section or 03 subject to an agreement described in (s) or (t) of this section 04  (A) to allow for production from an oil or gas field, pool, or 05 portion of a field or pool if 06  (i) the oil or gas field, pool, or portion of the field or 07 pool has been sufficiently delineated to the satisfaction of the 08 commissioner; 09  (ii) the field, pool, or portion of the field or pool has 10 not previously produced quantities of oil or gas for sale; and 11  (iii) oil or gas production from the field, pool, or 12 portion of the field or pool would not otherwise be economically 13 feasible; 14  (B) to prolong the economic life of an oil or gas field, pool, 15 or portion of a field or pool as per barrel or barrel equivalent costs 16 increase or as the price of oil or gas decreases, and the increase or 17 decrease is sufficient to make future production no longer economically 18 feasible; or 19  (C) to reestablish production of shut-in oil or gas that would 20 not otherwise be economically feasible; 21  (2) [. THE COMMISSIONER] may not grant a reduction of royalty 22 unless the lessee or lessees requesting the reduction make [MAKES] a clear and 23 convincing showing that a reduction of royalty meets the requirements of this 24 subsection and is in the best interests of the state; 25  (3) shall, as part of the royalty reduction agreement, [THE 26 REVENUE FROM THE LESSEE'S SHARE OF ALL HYDROCARBONS 27 PRODUCED FROM THE FIELD IS AND IS LIKELY TO CONTINUE TO BE 28 INSUFFICIENT TO PRODUCE A REASONABLE RATE OF RETURN WITH 29 RESPECT TO THE LESSEE'S TOTAL INVESTMENT IN THE FIELD. THE 30 COMMISSIONER MAY] condition the [A] royalty reduction granted under this 31 subsection by making reference to a sliding scale royalty or equivalent provision 01 that provides for adjustment of royalty [IN ANY WAY NECESSARY] to protect 02 the state's best interests; under this paragraph, the commissioner shall include 03 provisions in the agreement to increase or decrease the state's royalty share based 04 on relevant economic factors, including [INTEREST, INCLUDING 05 RESTORATION OF THE STATE'S ROYALTY SHARE IN THE EVENT OF AN 06 INCREASE IN] the price of oil or gas, field or pool production rate, projected 07 ultimate recovery, development costs, and operating costs; 08  (4) may not grant a royalty reduction for a field, pool, or portion 09 of a field or pool 10  (A) under (1)(A) of this subsection that exceeds 80 percent 11 of the royalty originally specified in a lease entered into under the 12 provisions of (f) of this section or AS 38.05.134; 13  (B) under (1)(B) or (1)(C) of this subsection that exceeds 90 14 percent of the royalty originally specified in a lease entered into under the 15 provisions of (f) of this section or AS 38.05.134; 16  (5) shall, as part of the royalty reduction application, require the 17 lessee or lessees to submit, with the application for the royalty reduction, financial 18 and technical data that demonstrates that the requirements of this subsection are 19 met; the commissioner 20  (A) may require disclosure of only the financial and 21 technical data relating to production that is reasonably available to the 22 applicant; and 23  (B) shall keep the data confidential under AS 38.05.035(a)(9) 24 upon the lessee's request; 25  (6) may require the lessee or lessees making application for the 26 royalty reduction to retain and pay for the services of a contractor, selected by 27 the lessee or lessees from a list of nationally recognized consultants in 28 hydrocarbon production and economics provided by the commissioner, to assist 29 the commissioner in evaluating the application and financial and technical data; 30 when the commissioner requires the lessee or lessees to retain the services of a 31 contractor under this paragraph, the commissioner shall determine the relevant 01 scope of the work to be performed by the contractor; 02  (7) shall make, publish, and give reasonable public notice of a 03 preliminary determination on the royalty reduction application and invite written 04 public comment to that preliminary determination during a period for receipt of 05 public comment; the duration of the public comment period is as long as the 06 commissioner determines, but may not be more than 30 days; 07  (8) shall, within 30 days after the close of the public comment 08 period under (7) of this subsection, make final written findings and a 09 determination; under this paragraph, 10  (A) the commissioner shall provide a copy of the written 11 findings and determination to the lessee and make copies of the findings 12 and determination available to any other person who submitted written 13 comment under (7) of this subsection and who has filed a written request 14 for the copies; 15  (B) the commissioner shall prepare a written summary of 16 the public response to the commissioner's preliminary determination; 17  (C) the commissioner shall transmit copies of the 18 commissioner's final determination and the summary prepared under (B) 19 of this paragraph to 20  (i) the presiding officer of each house [. BEFORE 21 APPROVING A ROYALTY REDUCTION, THE COMMISSIONER 22 SHALL MAKE A WRITTEN FINDING THAT THE STATE HAS 23 OBTAINED THE MAXIMUM POSSIBLE ECONOMIC RETURN 24 THAT IS COMPATIBLE WITH ALLOWING A REASONABLE 25 RATE OF ECONOMIC RETURN FOR THE LESSEE, AND SEND 26 COPIES OF THE FINDING TO ALL MEMBERS] of the legislature; 27  (ii) the chairs of the legislature's standing committees 28 on resources; and 29  (iii) the chairs of the legislature's special committees 30 on oil and gas, if any; 31  (D) the commissioner's written determination regarding 01 royalty reduction is final and not appealable to the court; 02  (9) is not limited by the provisions of AS 38.05.134(3) or (f) of this 03 section in the commissioner's determination under this subsection. 04 * Sec. 3. AS 38.05.180(p) is amended to read: 05  (p) To conserve the natural resources of all or a part of an oil or gas pool, 06 field, or like area, the lessees and their representatives may unite with each other, or 07 jointly or separately with others, in collectively adopting or operating under a 08 cooperative or a unit plan of development or operation of the pool, field, or like area, 09 or a part of it, when determined and certified by the commissioner to be necessary or 10 advisable in the public interest. The commissioner may, with the consent of the 11 holders of leases involved, establish, change, or revoke drilling, producing, and royalty 12 requirements of the leases and adopt regulations with reference to the leases, with like 13 consent on the part of the lessees, in connection with the institution and operation of 14 a cooperative or unit plan as the commissioner determines necessary or proper to 15 secure the proper protection of the public interest.  The commissioner may not 16 reduce royalty on leases in connection with a cooperative or unit plan except as 17 provided in (j) of this section. The commissioner may require oil and gas leases 18 issued under this section to contain a provision requiring the lessee to operate under 19 a reasonable cooperative or unit plan, and may prescribe a plan under which the lessee 20 must operate. The plan must adequately protect all parties in interest, including the 21 state. 22 * Sec. 4. AS 38.05.180(s) is amended to read: 23  (s) When separate tracts cannot be individually developed and operated in 24 conformity with an established well-spacing or development program, a lease, or a 25 portion of a lease, may be pooled with other land, whether or not owned by the state, 26 under a communication or drilling agreement providing for an apportionment of 27 production or royalties among the separate tracts of land comprising the drilling or 28 spacing unit when determined by the commissioner to be in the public interest. 29 Operations or production under the agreement are considered as operations or 30 production as to each lease committed to the agreement. The commissioner may not 31 reduce royalty on leases in connection with a communization or drilling 01 agreement except as provided in (j) of this section. 02 * Sec. 5. AS 38.05.180(t) is amended to read: 03  (t) The commissioner may prescribe conditions and approve, on conditions, 04 drilling, or development contracts made by one or more lessees of oil or gas leases, 05 with one or more persons, when, in the discretion of the commissioner, the 06 conservation of natural resources or the public convenience or necessity requires it or 07 the interests of the state are best served. All leases operated under approved drilling 08 or development contracts and interests under them, are excepted in determining holding 09 or control under AS 38.05.140.  The commissioner may not reduce royalty on a 10 lease or leases that are subject to a drilling or development contract except as 11 provided in (j) of this section. 12 * Sec. 6. This Act takes effect immediately under AS 01.10.070(c).